MUMBAI, May 23 (Reuters Breakingviews) - Western pledges to prevent the circumvention of anti-Russian sanctions risk falling flat in India. Fuelled by cheap imports from Moscow, the Asian country’s yearly oil products sales to Europe have surged over 70% to $15 billion in the past year, according to data from the Indian Ministry of Commerce. The trend shows trade restrictions are not watertight. And the Group of Seven vowed on Friday to plug sanctions loopholes. Yet, the risk of an energy inflation resurgence makes a European Union ban on Russian oil reselling a tough call.
The war in Ukraine has offered India an opportunity to boost purchases of discounted Russian oil. Crude imports from the sanctions-hit country jumped to $31 billion during the twelve months to March from just $2.5 billion in the previous year, Indian government data show. Russia is now the largest exporter of the commodity to the Asian nation, ahead of Iraq and Saudi Arabia. Procured at a few dollars below a G7 price cap of $60 a barrel imposed in December, part of Russia’s Urals crude consignments has been used for Indian domestic consumption and helped cool inflation.
The rest is being refined and shipped on as diesel and jet fuel to the West, providing a loophole for efforts to choke off Russia’s oil proceeds. European imports of oil derivatives jumped to 200,000 barrels per day after the EU banned Russian crude products imports on Feb. 5 from 154,000 barrels previously, according to Kpler data.
Sensing a growing problem, the EU’s top diplomat Josep Borrell has called for a crackdown on such exports. That would be taxing for private refiners including billionaire Mukesh Ambani’s Reliance Industries (RELI.NS) and Rosneft-backed (ROSN.MM) Nayara (ESRO.M3), which accounted for 60% of Indian oil imports from Russia in January, Vortexa energy flow data show.
However, enforcing a full-blown embargo, which requires unanimous support from all 27 EU states, would be hard. Refineries typically blend a basket of crudes from different sources before processing, making it difficult to identify the origins of each barrel. And New Delhi argues oil products substantially transformed in a third country cannot be subject to EU sanctions.
To avoid an open clash with India, the EU could try to target European companies buying Russian-origin refined oil. But Brussels will be also mindful that inflation in its core euro area remains sticky at 7%: diverting crude shipments away from the bloc could reignite a painful energy crisis.
In striving to weaken Russia, Europe is likely to avoid a crude approach.
Leaders attending the Group of Seven nations meeting in Hiroshima on May 19 to 21 pledged to further prevent the circumvention of sanctions imposed against Russia after its invasion of Ukraine, including by engaging with third countries through which restricted goods or technology may enter Russia. The European Union is working on its 11th package of sanctions against Moscow.
Josep Borrell, the European Union’s high representative for foreign affairs and security policy, told the Financial Times in an article published on May 16 the bloc should crack down on India reselling Russian oil as refined fuels including diesel into Europe.
Borrell clarified in a blog post dated May 19 on the website of the European Union External Action Services – which the EU’s chief diplomat leads - that the purpose of his earlier statement was not to criticise the Indian government but to say that the EU must take a closer look at how European companies are circumventing sanctions by purchasing refined oil coming originally from Russia.
India’s External Affairs Minister S Jaishankar said at a press conference on May 16 that Russian crude, when “substantially transformed” in a third country, is not treated as Russian anymore, pointing to EU Council Regulation 833/2014. European Commissioner for Competition Margrethe Vestager said the legal basis of the EU sanctions is not in doubt and it is “a discussion that we will have with friends, but it would be with an extended hand, and of course not with a pointed finger.”
Editing by Lisa Jucca and Katrina Hamlin
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humtum6767 on May 28th, 2023 at 10:09 UTC »
It’s the discounted price capped Russian crude that’s refined and exported to Europe.What’s the point of banning it without risking massive hike in petroleum prices? That’s the whole point of price cap.
-Purple_Light_Saber- on May 28th, 2023 at 07:33 UTC »
As long as Russia's profits remain close to zero (but are not actually zero, so that Kremlin retains the incentive to continue producing oil), the EU has no reason to rock the boat.
Keep up a steady global supply of oil, and ensure that prices stay low, and simultaneously strangle Russia's revenue.
donutloop on May 28th, 2023 at 06:50 UTC »
Submission statement
India has significantly increased its import of Russian oil, leading to a 70% surge in the country's oil product sales to Europe, reaching $15 billion over the past year. This development suggests gaps in the trade restrictions against Russia due to its ongoing conflict with Ukraine. While G7 nations have vowed to close these sanctions loopholes, the potential resurgence of energy inflation makes a ban on the resale of Russian oil in the European Union (EU) difficult.
Over the last year, India's crude imports from Russia soared to $31 billion, up from $2.5 billion in the preceding year, making Russia India's largest oil supplier. Some of the imported oil is used domestically, helping to mitigate inflation in India, while the rest is refined into diesel and jet fuel and exported to the West.
Despite calls for stricter control over these exports by the EU's top diplomat, Josep Borrell, a complete embargo seems challenging due to the difficulty in tracing the origin of each barrel of oil after blending. Moreover, India argues that oil products substantially transformed in a third country should not fall under EU sanctions.
In order to avoid conflict with India, the EU may target European companies buying Russian-origin refined oil. However, this approach must be balanced against the risk of exacerbating an energy crisis in the EU, where inflation remains at 7%. In attempting to undermine Russia, the EU is likely to avoid overly direct strategies.